Resources Connection, Inc. (Nasdaq: RGP) (the “Company”), a
global consulting firm, today announced financial results for its
fiscal first quarter ended August 26, 2023.
First Quarter Fiscal 2024 Highlights
Compared to Prior Year Quarter:
- Revenue of $170.2 million compared to $204.1 million
- Same-day constant currency revenue, a non-GAAP measure,
declined 17.0%
- Gross margin of 39.4% compared to 40.9%
- Net income of $3.1 million (net income margin of 1.8%) compared
to $18.1 million (net income margin of 8.9%)
- Diluted earnings per common share of $0.09 compared to
$0.53
- Adjusted EBITDA, a non-GAAP measure, of $11.5 million, or 6.8%
Adjusted EBITDA margin compared to 15.0%
- Cash dividends declared of $0.14 per share
- Available financial liquidity of $286.8 million, up from $226.4
million
Management Commentary
“Our team produced revenue and profitability that was ahead of
expectations, despite the ongoing pressures from the
macro-environment and our typical, seasonally impacted first
quarter,” said Kate W. Duchene, Chief Executive Officer. “While
project extensions have increased, new project wins remain
challenged as clients continue to operate with increased
conservatism. As we look ahead, we are highly focused on sourcing
and closing every revenue opportunity, while remaining vigilant on
improving our cost structure to better align with market
conditions. We are primed to execute as the market conditions
improve. I want to thank our team for your continued passion and
commitment to serve our clients and consultants and deliver value
to shareholders.”
First Quarter Fiscal 2024 Results
Revenue of $170.2 million compared to $204.1 million in the
first quarter of fiscal 2023. On a constant currency basis, revenue
decreased by 17.0% reflecting the impact of a persistently
challenging macroeconomic environment. While gross pipeline
remained relatively resilient, opportunities are taking longer to
close, typical in a tougher macro environment when clients are more
hesitant to spend on professional services. Compared to the prior
year quarter, billable hours decreased by 14.6% and the average
bill rate declined by 2.3% (or 3.1% on a constant currency basis).
The change in average bill rate was due to a shift in revenue mix
across the globe to regions with lower average bill rate. The
United States (U.S.) and Europe average bill rates increased by
2.1% and 4.4% on a constant currency basis, respectively, compared
to the prior year as a result of the Company’s initiative focused
on value based pricing.
Gross margin was 39.4% compared to 40.9% in the first quarter of
fiscal 2023. The reduction in gross margin was due to a higher
pay/bill ratio and a decrease in leverage on cost of service as a
result of lower topline revenue. While the pay/bill ratio in the
U.S. remained consistent with the prior year, the enterprise
pay/bill ratio was negatively impacted by an increased proportion
of revenue in regions with higher pay/bill ratio. The Company
continues to execute its value-based pricing initiative to expand
bill pay spread and improve operating leverage.
SG&A for the first quarter of fiscal 2024 was $59.9 million,
or 35.2% of revenue, compared to $56.2 million, or 27.6% of
revenue, for the first quarter of fiscal 2023. The increase in
SG&A included a $0.9 million increase in technology
transformation costs as the Company continued to execute its
technology implementation project and a $1.2 million increase in
computer software and certain professional services fees.
Income tax expense was $2.1 million (an effective tax rate of
40.0%), compared to $7.0 million (an effective tax rate of 27.8%)
in the prior year quarter. The higher effective tax rate in the
first quarter of fiscal 2024 was attributed to lower pre-tax income
globally when compared to the first quarter of fiscal 2023. We
incurred pre-tax losses in various foreign entities where we could
not recognize income tax benefits as a result of the required
valuation allowances. This lower global pre-tax income causes the
effective tax rate to increase because the permanent GAAP to tax
differences are measured against the lower base amount.
Net income was $3.1 million (net income margin of 1.8%),
compared to $18.1 million (net income margin of 8.9%) in the prior
year quarter, due primarily to lower gross profit resulting from
the overall macro-environment and higher SG&A as the Company
continued to execute on its technology implementation project to
drive long-term growth and efficiency. The Company delivered an
Adjusted EBITDA margin of 6.8% in the first quarter of fiscal
2024.
RESOURCES CONNECTION,
INC.
SUMMARY OF CONSOLIDATED
FINANCIAL RESULTS
(In thousands, except per
share amounts)
Three Months Ended
August 26,
August 27,
2023
2022
(Unaudited)
(Unaudited)
Revenue
$
170,169
$
204,062
Direct cost of services
103,168
120,595
Gross profit
67,001
83,467
Selling, general and administrative
expenses
59,932
56,187
Amortization expense
1,314
1,252
Depreciation expense
877
887
Income from operations
4,878
25,141
Interest (income) expense, net
(312
)
316
Other income
(2
)
(307
)
Income before income tax
expense
5,192
25,132
Income tax expense
2,075
6,992
Net income
$
3,117
$
18,140
Net income per common share:
Basic
$
0.09
$
0.55
Diluted
$
0.09
$
0.53
Weighted-average number of common and
common equivalent shares outstanding:
Basic
33,412
33,277
Diluted
34,010
34,234
Cash dividends declared per common
share
$
0.14
$
0.14
Revenue by
Geography
North America
$
146,583
$
179,549
Europe
10,946
11,175
Asia Pacific
12,640
13,338
Total consolidated revenue
$
170,169
$
204,062
Cash
dividend
Total cash dividends paid
$
4,681
$
4,647
Conference Call Information
RGP will hold a conference call for analysts and investors at
5:00 p.m., ET, today, October 4, 2023. A live webcast of the call
will be available on the Events section of the Company’s Investor
Relations website. To access the call by phone, please go to this
link (registration link), and you will be provided with dial in
details. To avoid delays, we encourage participants to dial into
the conference call fifteen minutes ahead of the scheduled start
time. A replay of the webcast will also be available for a limited
time by visiting the https://ir.rgp.com/events section of the
Company’s Investor Relations website.
About RGP
Recently named among Forbes’ World’s Best Management Consulting
Firms for 2023, RGP is a global consulting firm focused on project
execution services that power clients’ operational needs and change
initiatives utilizing on-demand, expert and diverse talent. As a
next-generation human capital partner for our clients, we
specialize in co-delivery of enterprise initiatives typically
precipitated by business transformation, strategic transactions or
regulatory change. Our engagements are designed to leverage human
connection and collaboration to deliver practical solutions and
more impactful results that power our clients’, consultants’ and
partners’ success.
A disruptor within the professional services industry since our
founding in 1996, today the Company embraces our highly
differentiated agile delivery model. We attract top-caliber
professionals with in-demand skill sets who seek a workplace
environment characterized by choice and control, collaboration and
human connection. The trends in today’s marketplace favor
flexibility and agility as businesses confront transformation
pressures, severe skilled labor shortages and speed-to-market
challenges. As talent preferences continue to shift in the
direction of flexibility, employers competing in today’s business
environment must rethink the way work gets done and consider
implementing new, more agile workforce strategies. Our client
engagement and talent delivery model offers speed and agility,
strongly positioning us to help our clients transform their
businesses and workplaces, especially at a time where high-quality
talent is scarce and reliance on a flexible workforce to execute
transformational projects is increasingly imperative.
With approximately 3,800 professionals collectively engaged with
over 1,900 clients around the world from 41 physical practice
offices and multiple virtual offices, we are their partner in
delivering on the “now of work.” Headquartered in Irvine,
California, RGP is proud to have served 88% of the Fortune 100.
The Company is listed on the Nasdaq Global Select Market, the
exchange’s highest tier by listing standards. To learn more about
RGP, visit: http://www.rgp.com. (RGP-F)
Forward-Looking Statements
Certain statements in this press release are “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933 as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. These statements relate to expectations
concerning matters that are not historical facts. Such
forward-looking statements may be identified by words such as
“anticipates,” “believes,” “can,” “continue,” “could,” “estimates,”
“expects,” “intends,” “may,” “plans,” “potential,” “predicts,”
“remain,” “should” or “will” or the negative of these terms or
other comparable terminology. In this press release, such
statements include statements regarding our growth and operational
plans, our ability to capture demand when the buying environment
improves and expectations regarding our continued growth and
ability to deliver increased stockholder value. These statements
and all phases of the Company’s operations are subject to known and
unknown risks, uncertainties and other factors that could cause our
actual results, levels of activity, performance or achievements and
those of our industry to differ materially from those expressed or
implied by these forward-looking statements. Risks and
uncertainties include, but are not limited to, the following: risks
related to an economic downturn or deterioration of general
macroeconomic conditions, the highly competitive nature of the
market for professional services, risks related to the loss of a
significant number of our consultants, or an inability to attract
and retain new consultants, the possible impact on our business
from the loss of the services of one or more key members of our
senior management, risks related to potential significant increases
in wages or payroll-related costs, our ability to secure new
projects from clients, our ability to achieve or maintain a
suitable pay/bill ratio, our ability to compete effectively in the
competitive bidding process, risks related to unfavorable
provisions in our contracts which may permit our clients to, among
other things, terminate the contracts partially or completely at
any time prior to completion, potential adverse effects to our and
our clients’ liquidity and financial performances from bank
failures or other events affecting financial institutions, risks
arising from epidemic diseases or pandemics, our ability to realize
the level of benefit that we expect from our restructuring
initiatives, risks that our recent digital expansion and technology
transformation efforts may not be successful, our ability to build
an efficient support structure as our business continues to grow
and transform, our ability to grow our business, manage our growth
or sustain our current business, our ability to serve clients
internationally, additional operational challenges from our
international activities including due to social, political,
regulatory, legal and economic risks in the countries and regions
in which we operate, possible disruption of our business from our
past and future acquisitions, the possibility that our recent
rebranding efforts may not be successful, our potential inability
to adequately protect our intellectual property rights, risks that
our computer hardware and software and telecommunications systems
are damaged, breached or interrupted, risks related to the failure
to comply with data privacy laws and regulations and the adverse
effect it may have on our reputation, results of operations or
financial condition, our ability to comply with governmental,
regulatory and legal requirements and company policies, the
possible legal liability for damages resulting from the performance
of projects by our consultants or for our clients’ mistreatment of
our personnel, risks arising from changes in applicable tax laws or
adverse results in tax audits or interpretations, the possible
adverse effect on our business model from the reclassification of
our independent contractors by foreign tax and regulatory
authorities, the possible difficulty for a third party to acquire
us and resulting depression of our stock price, the operating and
financial restrictions from our credit facility, risks related to
the variable rate of interest in our credit facility, the
possibility that we are unable to or elect not to pay our quarterly
dividend payment, and other factors and uncertainties as are
identified in our most recent Annual Report on Form 10-K for the
year ended May 27, 2023 and our other public filings made with the
Securities and Exchange Commission (File No. 0-32113). Additional
risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business or operating
results. Readers are cautioned not to place undue reliance on the
forward-looking statements included herein, which speak only as of
the date of this press release. The Company does not intend, and
undertakes no obligation, to update the forward-looking statements
in this press release to reflect events or circumstances after the
date of this press release or to reflect the occurrence of
unanticipated events, unless required by law to do so.
Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures to assess
our financial and operating performance that are not defined by, or
calculated in accordance with, GAAP. A non-GAAP financial measure
is defined as a numerical measure of a company’s financial
performance that (i) excludes amounts, or is subject to adjustments
that have the effect of excluding amounts, that are included in the
comparable measure calculated and presented in accordance with GAAP
in the Consolidated Statements of Operations; or (ii) includes
amounts, or is subject to adjustments that have the effect of
including amounts, that are excluded from the comparable GAAP
measure so calculated and presented. The following non-GAAP
measures are presented in this press release:
- Same-day constant currency revenue is adjusted for the
following items:
- Currency impact. In order to remove the impact of fluctuations
in foreign currency exchange rates, the Company calculates same-day
constant currency revenue, which represents the outcome that would
have resulted had exchange rates in the current period been the
same as those in effect in the comparable prior period.
- Business days impact. In order to remove the fluctuations
caused by comparable periods having a different number of business
days, the Company calculates same-day revenue as current period
revenue (adjusted for currency impact) divided by the number of
business days in the current period, multiplied by the number of
business days in the comparable prior period. The number of
business days in each respective period is provided in the “Number
of Business Days” section of the “Reconciliation of GAAP to
Non-GAAP Financial Measures” table below.
- EBITDA is calculated as net income before amortization expense,
depreciation expense, interest and income taxes.
- Adjusted EBITDA is calculated as EBITDA plus or minus
stock-based compensation expense, technology transformation costs,
and restructuring costs. Adjusted EBITDA at the segment level
excludes certain shared corporate administrative costs that are not
practical to allocate.
- Adjusted EBITDA Margin is calculated by dividing Adjusted
EBITDA by revenue.
- Cash tax rate excludes the non-cash tax impact of stock option
expirations, non-cash tax impact of valuation allowances on
international deferred tax assets, and other non-cash tax
items.
- Adjusted income tax expense is calculated based on the
Company’s cash tax rates (as defined above).
- Adjusted diluted earnings per common share is calculated as
diluted earnings per common share, plus or minus the per share
impact of stock-based compensation expense, technology
transformation costs, restructuring costs, and adjusted for the
related tax effects of these adjustments.
We believe the above-mentioned non-GAAP financial measures,
which are used by management to assess the core performance of our
Company, provide useful information and additional clarity of our
operating results to our investors in their own evaluation of the
core performance of our Company and facilitate a comparison of such
performance from period to period. These are not measurements of
financial performance or liquidity under GAAP and should not be
considered in isolation or construed as substitutes for revenue,
net income or other cash flow data prepared in accordance with GAAP
for purposes of analyzing our revenue, profitability or liquidity.
These measures should be considered in addition to, and not as a
substitute for, revenue, net income, earnings per share, cash flows
or other measures of financial performance prepared in accordance
with GAAP. In addition, these non-GAAP financial measures may not
provide information that is directly comparable to that provided by
other companies, as other companies may calculate such financial
results differently.
RESOURCES CONNECTION,
INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(In thousands, except number
of business days)
Three Months Ended
August 26,
August 27,
Revenue by
Geography
2023
2022
(Unaudited)
North
America
As reported (GAAP)
$
146,583
$
179,549
Currency impact
(695
)
Business days impact
-
Same-day constant currency revenue
$
145,888
Europe
As reported (GAAP) (1)
$
10,946
$
11,175
Currency impact
(559
)
Business days impact
92
Same-day constant currency revenue
$
10,479
Asia
Pacific
As reported (GAAP)
$
12,640
$
13,338
Currency impact
496
Business days impact
(199
)
Same-day constant currency revenue
$
12,937
Total
Consolidated
As reported (GAAP) (1)
$
170,169
$
204,062
Currency impact
(758
)
Business days impact
(107
)
Same-day constant currency revenue
$
169,304
Number of
Business Days
North America (2)
63
63
Europe (3)
64
64
Asia Pacific (3)
63
62
(1) Total Consolidated revenue and Europe revenue as reported
under GAAP include taskforce revenue of zero and $0.2 million for
the three months ended August 26, 2023 and August 27, 2022,
respectively. (2) This represents the number of business days in
the United States. (3) The business days in international regions
represents the weighted average number of business days.
RESOURCES CONNECTION,
INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(In thousands, except per
share amounts and percentages)
Three Months Ended
August 26,
% of
August 27,
% of
2023
Revenue
2022
Revenue
Adjusted
EBITDA
(Unaudited)
(Unaudited)
Net income
$
3,117
1.8
%
$
18,140
8.9
%
Adjustments:
Amortization expense
1,314
0.8
1,252
0.6
Depreciation expense
877
0.5
887
0.4
Interest (income) expense, net
(312
)
(0.2
)
316
0.2
Income tax expense
2,075
1.3
6,992
3.4
EBITDA
7,071
4.2
27,587
13.5
Stock-based compensation expense
2,552
1.5
2,529
1.2
Technology transformation costs (1)
1,923
1.1
991
0.5
Restructuring adjustments (2)
-
-
(397
)
(0.2
)
Adjusted EBITDA
$
11,546
6.8
%
$
30,710
15.0
%
Adjusted Diluted
Earnings per Common Share
Diluted earnings per common share, as
reported
$
0.09
$
0.53
Stock-based compensation expense
0.08
0.07
Technology transformation costs (1)
0.06
0.03
Restructuring costs (2)
-
(0.01
)
Income tax impact of adjustments
(0.03
)
(0.02
)
Adjusted diluted earnings per common
share
$
0.20
$
0.60
Adjusted Income
Tax Expense and Cash Tax Rate
Income tax expense
$
2,075
$
6,992
Effect of non-cash tax items:
Stock option expirations
(22
)
(1
)
Valuation allowance on international
deferred tax assets
(96
)
(208
)
Net uncertain tax position adjustments
(16
)
(11
)
Other adjustments
-
54
Adjusted income tax expense
$
1,941
$
6,826
Effective tax rate
40.0
%
27.8
%
Total effect of non-cash tax items on
effective tax rate
(2.6
%)
(0.6
%)
Cash tax rate
37.4
%
27.2
%
(1) Technology transformation costs represent costs included in
net income related to the Company’s initiative to upgrade its
technology platform globally, including a cloud-based enterprise
resource planning system and talent acquisition and management
systems. Such costs primarily include hosting and certain other
software licensing costs, third-party consulting fees and costs
associated with dedicated internal resources that are not
capitalized. (2) The Company substantially completed our global
restructuring and business transformation plan in fiscal 2021. All
of the remaining accrued restructuring liability on the books
related to employee termination costs that were either paid or
released in fiscal 2023.
Segment Results
On May 31, 2022, the Company divested taskforce – Management on
Demand GmbH, and its wholly owned subsidiary skillforce – Executive
Search GmbH, a German professional services firm operating under
the taskforce brand (“taskforce”). Since the second quarter of
fiscal 2021, the business operated by taskforce, along with its
parent company, Resources Global Professionals (Germany) GmbH, an
affiliate of the Company, represented an operating segment of the
Company and was reported as a part of Other Segments. Effective May
31, 2022, the Company’s operating segments consist of RGP and
Sitrick, within the Other Segment category. Prior-period
comparative segment information was not restated as a result of the
divestiture of taskforce as the Company did not have a change in
internal organization or the financial information that the Chief
Operating Decision Maker uses to assess performance and allocate
resources.
RGP is the Company’s only operating segment that meets the
quantitative threshold of a reportable segment. Sitrick does not
individually meet the quantitative threshold to qualify as a
reportable segment. Therefore, Sitrick is disclosed in Other
Segments.
The following table discloses the Company’s revenue and Adjusted
EBITDA by segment for each of the periods presented (in
thousands):
Three Months Ended
August 26,
August 27,
2023
2022
Revenue:
(Unaudited)
(Unaudited)
RGP
$
167,504
$
200,995
Other Segments (1)
2,665
3,067
Total revenue
$
170,169
$
204,062
Adjusted EBITDA:
RGP
$
20,798
$
38,347
Other Segments (1)
71
316
Reconciling items (2)
(9,323
)
(7,953
)
Total Adjusted EBITDA (3)
$
11,546
$
30,710
(1) Amounts reported in Other Segments for the three months
ended August 27, 2022 include Sitrick and an immaterial amount from
taskforce from May 29, 2022 through May 31, 2022, the completion
date of the sale. (2) Reconciling items are generally comprised of
unallocated corporate administrative costs, including management
and board compensation, corporate support function costs and other
general corporate costs that are not allocated to segments. (3) A
reconciliation of the Company’s net income to Adjusted EBITDA on a
consolidated basis is presented in the table on page 6.
RESOURCES CONNECTION,
INC.
SELECTED BALANCE SHEET, CASH
FLOW AND OTHER INFORMATION
(In thousands, except
consultant headcount and average rates)
August 26,
May 27,
SELECTED BALANCE SHEET INFORMATION:
2023
2023
(Unaudited)
Cash and cash equivalents
$
112,595
$
116,784
Trade accounts receivable, net of
allowance for doubtful accounts
$
131,628
$
137,356
Total assets
$
522,387
$
531,999
Current liabilities
$
83,890
$
97,084
Long-term debt
$
-
$
-
Total liabilities
$
103,546
$
117,479
Total stockholders’ equity
$
418,841
$
414,520
Three Months Ended
August 26,
August 27,
SELECTED CASH FLOW INFORMATION:
2023
2022
(Unaudited)
(Unaudited)
Cash flow -- operating activities
$
(2,214
)
$
(5,296
)
Cash flow -- investing activities
$
(548
)
$
2,275
Cash flow -- financing activities
$
(1,557
)
$
(29,118
)
Three Months Ended
August 26,
August 27,
SELECTED OTHER INFORMATION:
2023
2022
(Unaudited)
(Unaudited)
Consultant headcount, end of period
2,885
3,386
Average bill rate (1)
$
125
$
128
Average pay rate (1)
$
60
$
61
Common shares outstanding, end of
period
33,697
33,751
(1) Rates represent the weighted average bill rates and pay
rates across the countries in which we operate. Such weighted
average rates are impacted by the mix of our business across the
geographies as well as fluctuations in currency rates. Constant
currency average bill and pay rates using the same exchange rates
in the first quarter of fiscal 2023 were $124 and $61,
respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231004669368/en/
Analyst Contact: Jennifer Ryu, Chief Financial Officer
(US+) 1-714-430-6500 Jennifer.Ryu@rgp.com
Media Contact: Michael Sitrick (US+) 1-310-788-2850
mike_sitrick@sitrick.com
Resources Connection (NASDAQ:RGP)
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